Cash Rate – Reduced to 1.5%
The Reserve Bank of Australia (RBA) has just announced it will reduce the official cash rate to 1.5%.
In a finely balanced decision the RBA would have been particularly influenced by the results of the June quarter inflation rising only 0.4% and hence only 1.0% over the twelve months to the June quarter 2016. This compares with a rise of 1.3% over the twelve months to the March quarter 2016.
With inflation running well below the RBA target band of 2.0%-3.0% and the labour market having lost momentum over recent months the RBA felt it was time to move rates down again.
The RBA will update its forecast outlook in the Statement of Monetary Policy on Friday 5th August which will provide some reasoning behind their “cut” decision and paint a picture of the near future.
As we see interest rates continue to fall, the next 12 months will be very interesting times. Despite three cash rate cuts of 25 basis points each since March 2015 there has been little benefit to the economy and other macro tools are likely required to refire the economy. Two things are for sure:
Interest rates are historically low so borrowing is very cost effective
There is not much left for the RBA to play with…
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